Understanding Earned Value Management & Analysis Abba Consulting Federal Acquisition Conference & Exposition Washington, DC June 19-20, 2007 Wayne Abba (703)

2 Understanding Earned Value Management EVM = Resource Management Resources are labor, material and other direct and indirect costs required to execute the program FAA applies EVM at Program level to include prime and sub contractors, government FTEs and support contractors Managed in dollars, hours, or any measurable unit Government accounting systems may not support EVM-based program/project management

Ensuring Planned Resources are Adequate Using an Integrated Baseline Review (IBR) JFMA Time Resources MJJ A Program Budget Front Loaded End Loaded Normal Program/Contract IBR is critical planning process

4 EVM and Baseline Discipline Effective performance management requires disciplined baseline management Initial baseline reflects go-ahead decision Scope, schedule, resources, risk Approve program/contract baseline changes to Revise work scope (increase or decrease) Restore meaningful performance management Manage funding reductions (“salami slices” or prioritized cuts?) Balance scope, schedule, cost, risk assumptions Do not approve baseline changes to “Get to Green” Eliminate cost and schedule variances

5 Understanding Earned Value Analysis Earned Value Analysis = Understanding the relationships among the EVM data elements EVM discipline provides confidence that: Contractor and PM management systems are adequate to provide effective monitoring and control Data are summarized from the Control Account level, where technical/schedule/cost integration occurs When data are used for management and oversight Data quality becomes “self-policing” Allows Management to ask questions and be informed, critical consumers EVM data should inform decisions – but cannot make decisions

6 Cost Variance Approx. Time Variance J F MA Time Resources Time Now ACWP (Actual Cost) BCWS (Planned Value) BCWP (Earned Value) Cumulative Trend Analysis M JJA Schedule Slip Schedule Variance Risk Management Reserve At Complete Variance Prog Budget ▲ Standard graphics for all programs

7 Cost/Schedule Variance Trend Analysis Time Cost Variance at Completion Schedule Variance at Completion 0 Cost Variance --- Schedule Variance Management Reserve Unfavorable Favorable Management Reserve Consumption Schedule Slip

8 Evaluating Future Performance Time 0 Cost Variance Management Reserve Unfavorable Favorable PM Variance at Completion When/how will performance improve? Review at appropriate time Tie PM evaluation to predictability Time Now

9 D M JS Time Resources Time Now EVA and Funds Management D MJS Prog Budget Approved/Planned Funding BCWP (Earned Value) BCWS (Planned Value) ACWP (Actual Cost)

10 EVA and Profitability Analysis on Flexibly Priced Contracts Time 0 Cost Variance --- Schedule Variance Management Reserve Unfavorable Favorable Min/Max Fee Contractor Loss Time Now Cost Sharing Cost Variance levels cf:

11 EVA and Profitability Analysis on Flexibly Priced Contracts Time 0 Cost Variance --- Schedule Variance Management Reserve Unfavorable Favorable Min/Max Fee Contractor Loss Time Now Cost Variance levels cf: Cost Sharing

12 EVM/A and Effective Contracting Program and Contract WBS Essential to get it right – this is Job #1 Contract type “Do I have to do EVM on FFP?” is the wrong question Evaluate risk and complexity – EVM is scalable Purpose of EVM/A Excellent management Objective, timely reporting – “Early Warning” to inform decisions  Linking incentives to reported Cost/Schedule Performance Indices (CPI/SPI) can cause undesirable behavior  If used – link to observable outcomes such as Preliminary/ Critical Design Review and Contract completion

13 Summary Understand EVM/A and Resource Management From a single database, use EVM to Manage the program Measure program performance Take appropriate management actions Report to senior management and to customers Fix the problem, not the blame Encourage timely problem identification and objective reporting Incentivize desirable behavior, not undesirable behavior Don’t necessarily equate program and PM performance Develop organizational history and “IQ” Resources FAA – Bob Rovinsky/Keith Kratzert Project Management Institute’s College of Performance Management – EVM Community of Interest (CoEye) National Defense Industrial Association’s Program Management Systems Committee